Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets

30 Pages Posted: 17 Sep 2018

See all articles by Christos Genakos

Christos Genakos

Cambridge Judge Business School; Athens University of Economics and Business (AUEB); Center for Economic Policy Research (CEPR); Center for Economic Performance (CEP)

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

John Van Reenen

Massachusetts Institute of Technology (MIT)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2018

Abstract

When will a monopolist have incentives to leverage her/his market power in a primary market to foreclose competition in a complementary market by degrading compatibility/interoperability of her/his products with those of her/his rivals? We develop a framework where leveraging extracts more rents from the monopoly market by ‘restoring’ second‐degree price discrimination. In a random coefficient model with complements, we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsoft's alleged strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system that allows for complements (personal computers and servers). Our estimates suggest that there were incentives to reduce interoperability that were particularly strong at the turn of the 21st century.

Suggested Citation

Genakos, Christos and Kuhn, Kai-Uwe and Van Reenen, John, Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets (October 2018). Economica, Vol. 85, Issue 340, pp. 873-902, 2018. Available at SSRN: https://ssrn.com/abstract=3246023 or http://dx.doi.org/10.1111/ecca.12257

Christos Genakos (Contact Author)

Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Athens University of Economics and Business (AUEB) ( email )

76 Patission Street
Athens, 104 34
Greece

HOME PAGE: http://www.aueb.gr/users/cgenakos

Center for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Center for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

John Van Reenen

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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